Importance of Reverse Logistics
Contribution by Shraddha Kulshrestha – Supply Chain Consultant at Bristlecone
Any logistics involved after the point of sale to recapture value and ensure proper disposal of the returned product, is called reverse logistics. This aftermarket activity involves activities like Refurbishment, Replacement, Remanufacturing, Scrap and even Excess inventory, etc. It includes recycling programs, hazardous programs, proper equipment disposition and asset recovery.
Earlier companies did not pay much attention to reverse logistics. However, now due to consumer awareness, law enforcement on disposal of certain goods makes it very important for companies to manage an efficient reverse logistics. Now-a-days, companies are even getting ISO certification for their returns process.
Reverse Logistics Activities
It can include a variety of activities depending on whether the goods are returned from a customer (end user) or a distributor, whether the goods sent back is a packaging material or a product and similar other factors. If it is a product then activities like refurbish, recondition, remanufacture, recycle, landfill, etc. can be performed.
If it is a packaging material, reuse, refurbish, recycle, reclaim material activities are involved. For examples, Coca Cola reuses its glass bottles and reconditions it before bringing it back in the market. Broken bottles are recycled.
To reduce costs, firms attempt to reuse materials as much as possible. For products that cannot be reused in anyway due to its poor condition, legal implications, environmental issues, etc. firms then scrap the products at least possible cost.
The table below shows few examples of the type of returns from supply chain partners (retailers /distributors) and end users:
|Supply Chain Partners||End Users|
|Stock Balancing Returns||Defective Unwanted Product|
|Marketing Returns||Warranty Returns|
|End Of Life/ Season||Recalls|
|Transit Damage||Environmental Disposable Issues|
|Reusable Boxes||Recycling / Reuse|
Strategic variable not only places emphasis on business functions such as finance, marketing but also logistics. Many firms now take the material back through the supply chain as an important capability in logistics. The 1982 Johnson & Johnson Tylenol poisoning case is a classic example of how important reverse logistics can be for a company. Tylenol was laced with cyanide because of which 7 people died. The company market value fell by USD 1 billion during that time. The same case happened again in 1986, but this time the company was ready with an efficient reverse logistics system. It recalled the product from every possible store and not just the places where it had happened. Johnson & Johnson then came up with a tamper proof packaging and was able to re-establish its name.
Customer satisfaction is an important objective of companies to remain competitive. Firms have started to believe that satisfied customers are important assets and hence have liberalised their returns policy. Best example to explain this would be online shopping websites like Myntra, Firstcry, etc. Customers who are not satisfied with the products they have purchased, regardless of whether the product has any fault or not, can return them along with pre-printed returns forms supplied to them by the company along with the product. Louis Philipe replaces their defective products immediately and do not even ask for an invoice proof.
Nike takes back worn-out shoes and grinds them to make a new material called Nike Grind which is used to make high quality basketball courts, turfs, tracks and more. The customers do not get anything in return, however the environmental benefit associated with it incentivizes people to buy the shoes.
Not every company today emphasizes on their returns policy, but the investment in reverse logistic systems is higher than before and quite substantial. A strategic reverse system can help a company stand out in the market and become more profitable.